Whilst many are enjoying the benefits of remote working, lacking a dedicated space from which to do so can wear thin. As such, thoughts turn to creating a more ‘permanent’ and comfortable home office space.
If you’re a company director, you may be wondering whether your business could subsidise the associated costs.
Limited company paying for a garden, garage or home office
Your limited company can pay for a garden office, but it is not usually possible to claim tax relief on the structure itself – inclusive of planning, construction or installation – as the structure is located within your residence.
On the flip side, relief may be available on furnishings and equipment (i.e. desks) within the structure, via capital allowances. This applies too, where you are converting a garage or a room in your house.
Where an office space is derived of changes to personal property, the cost can be met but will be added back to any profits or losses for tax purposes; this is because it is deemed to be an ‘improvement’ to your residence.
Thermal insulation and integral features to the building such as electrical and water systems may qualify for capital allowances, whilst running costs and repairs can be claimed as business expenses and therefore deducted from taxable profits.
Understand the tax implications
VAT-registered companies can cover the cost of purchase or conversion, contents and running costs and claim back VAT on this amount. The amount recoverable for VAT is “all or nothing”, meaning that if you have any private use of the space, the VAT element will not be recoverable.
Even with a private use element, it is still possible to get a tax savings of 19% on utility bills generated by the home. These costs will be apportioned by business use and are an allowable cost to the business.
Likewise, if the space caters to business and personal use, you may only claim VAT back on the business element.
Capital Gains Tax (CGT) is also something to consider, should you wish to sell the property at any time.
Most people selling their main home, to buy another, will be exempt from paying CGT because of the availability of Principal Private Residence Relief (PPR). If you are self-employed, or a company director, however, and you have paid for your home office space through your business, any gain will be apportioned between private and business space, for the time the home office is in use. Consequently, using part of your home exclusively for business will impact the level of PPR available to you.
Where tax and tax relief are concerned, invest in advice to ensure you are not making any erroneous claims.
Home office: Business use vs. personal use
If a home office space doubles as personal space, HMRC are likely to view it as a ‘benefit in kind’. Where so, you will need to report it on your tax return and pay the associated income tax charge.
When located within the boundaries of your residence, it will be tricky to prove that there is no personal use. It is important that you understand and accept this risk, before proceeding.
If your limited company pays for it, your limited company owns it
Much like you own the things you pay for, the same principle applies to your limited company. If your limited company meets the costs, the space becomes a company asset. Now say, for example, you want to close your company or sell your property; you would need to factor in buying the space back from your business.
Alternatively, you could opt to own the space privately and charge your company a proportion of household costs as rent. This does, however, come with a stark warning; rent becomes taxable when it exceeds the £7,500 rent-a-room allowance.
How can George Hay help?
Whilst having your limited company pay for your home office and its contents presents itself as an attractive option, it deserves serious consideration. Long-term, it may or may not be the right solution for you.
If you’re thinking about creating a home office space and want to discuss the tax implications of having your business subsidise the cost of doing so, contact our team of chartered accountants and business advisers today.
We have offices in Cambridgeshire, Bedfordshire and Hertfordshire, but can support you wherever you’re working from.
